Class A and Class B shares An Introduction
As a stock marekt beginner you will hear the two terms very commonly and these are Class A and Class B shares.
Well what are they, how much risk they carry and what happens to the stock in terms voting rights.It is these voting rights that determine who has the voice to be heard during the annual general meeting of the board.
Let us first discuss common stock, common stock is the common stock of share issued by the company and these common shareholders holding common shares elect a board of directors which in turn oversees the corporate policy. However common stock holders carry the maximum amount of risk because let us say if the company goes into liquidation then the company will first pay the debtors such as banks etc from whom they have taken loans and then they pay preferred stock holders and the last come the common stock holders which in all reality cannot ask for their share in the liquidation till everybody else is paid off.
However most investors who invest in the stock market will like to take risk anyway because the risk has its own rewards as the common shares will typically appreciate in value if the company is doing well.
As compared to common stock the preferred stock is the one which will be paid off before the common stock shareholders. Preferred shareholders do not have any voting rights but they do get some amount of fixed dividend. The preferred stock is less risky than the common stock.
In the stock market you will keep hearing the terms Class A shares and Class B shares. Class A shares in a lot of cases have ten or five votes per share while on the other hand the Class B shares will have only vote per share. The reason for this classification is that companies will try to give more voting power to some kind of shares and certain type of investors.
As an investor you should be very vigilant and that means reading the company prospectus as well as various bylaws according to which the govern.